BI and major accounting firms to audit local banks

JAKARTA (JP): Bank Indonesia (BI) and six of the world's major accounting firms will conduct a due diligence audit of Indonesia's commercial banks to ascertain their financial condition, a central bank official said yesterday.

BI's deputy director for regulations and banking development, Djoko Sarwono, said the review of more than 200 commercial banks -- including scrutiny of asset quality, capital, management, and networking -- would start this month.

"These important aspects will be compared with international banking practices," he told reporters yesterday after a banking seminar.

He explained that the results would be used to formulate better policies for the banking sector.

The audit will be sponsored by the Asian Development Bank and executed by international accounting firms including Arthur Andersen and Price Waterhouse, he said.

"This task will be completed in three months," Djoko, who oversees banking development and regulations for the central bank, said.

Banks under the management and supervision of the Indonesian Bank Restructuring Agency (IBRA) will also be included in the audit.

Djoko expects the audit will assist the central bank in coming up with policies to prepare the country's commercial banks for the era of globalization.

Indonesia's worst-ever monetary crisis has brought the banking sector to its knees.

A total of 23 banks have been closed down since November last year. The management of seven other banks is under the control of IBRA while the agency is supervising a further 32 banks.

Djoko admitted that the monetary crisis had led to a crisis of confidence in the banking sector, in which not even the healthiest bank operation could withstand a bank run.

In an agreement with the International Monetary Fund (IMF), the government agreed to abandon old banking practices, he said. And the central bank is receiving strict guidance from the IMF, which is demanding BI implement international banking practices.

"But this cannot be done overnight," Djoko said, pointing to the large number of commercial banks.

Bank owners must be practical and adjust to the changes, which require banks to merge if they cannot stand alone, he said.

"Our one-stop service started operating today," Djoko said, referring to the central bank's special division which provides technical assistance for bank mergers.

He added that part of the changing environment was a plan to revamp the country's banking law, including its secrecy codes.

"Under the new codes, the asset side will be disclosed, and only the liabilities side is kept secret," he said, stressing that in a special investigation the liabilities could be disclosed.

Djoko said that creating a healthy and prudent banking industry had been the central bank's major concern.

BI wants to create a mature banking system with a strong structure, which is not overcrowded, but instead backed-up by strong capital and management, and able to compete with overseas banks, he said. (rei)